Chris Freind: Why tax cuts are the right thing to do

Imagine a baseball team requiring players use 50-ounce bats, while all other teams use the standard 32-ounce slugger – a huge difference when facing 95 mph pitches.

There would be two results:

A) They’d be in last place, since swinging heavier bats would produce fewer hits, and thus, fewer runs.

B) Players and coaches, fleeing to greener pastures, would see their values rise, because their productivity would increase. Less restrictive rules would free players to focus on what they do best, and the extra coin in their pockets would provide incentive to work even harder.

Common sense dictates that the last place team would re-evaluate its policies so as to halt the exodus and become competitive. By leveling the playing field, it would create a winning environment and achieve a financial windfall.

Conversely, it would be crazy to go in the other direction. Even an obtuse team would eventually see its mistake and move to rectify it. Right?

Wrong. For decades, in a nod to insanity, both parties in Washington adamantly refused to change the largest factor keeping America’s economy stagnant: the world’s highest corporate tax.

But keep your fingers crossed, because maybe, just maybe, things might change. If Republicans pass their sweeping tax overhaul bill, America’s economy will finally get the jumpstart it so desperately needs.

With great fanfare, President Trump and GOP congressional leaders introduced their proposed tax cut as a Christmas present to all Americans.

Right idea. Wrong description.

Yes, the tax cut would inarguably help all Americans, despite ill-informed “class-warfare” specialists who deride the plan as – what else? – tax cuts just for the wealthy and a handout to corporations. Nothing could be further from the truth. Just as the rising tide lifts all boats, tax cuts benefit every American.

However, the GOP failed to articulate its proposal, once again not spending a dime on a nationwide ad campaign touting the benefits of tax cuts. Worse, by labeling it a “Christmas gift” – even tongue-in-cheek – it ingrains in people’s minds the incorrect notion that government is bestowing its benevolence on the lowly people by granting them a tax cut.

Sorry, but no.

There’s no such thing as “government money.” It’s the people’s. Period. High taxes can never be justified, but that pill might not be so bitter if at least tax money was wisely spent. We all know otherwise.

The bill aims to reduce both corporate and personal income taxes. This column won’t go into the minutiae, but instead looks at why tax cuts are so critically important.

1) The ivory tower analysts have come out against the bill. No surprise, since they prefer fanciful academic theory to the real-world. Their objection is that tax cuts will add to the national debt, ultimately hurting the economy – a sentiment echoed by many Democrats.

How utterly ironic that Democrats suddenly care about fiscal responsibility, given that their entire platform is based on bigger government funded through higher taxes. Much more important, that line of thinking is factually incorrect.

There have been two major tax cuts in modern American history (under Presidents Kennedy and Reagan). In both cases, the economy was catapulted into overdrive, and the reason was simple: Americans don’t save; they spend.

The American people work hard. They play hard, too, and that involves pouring money into the economy. With a tax cut, they’ll buy cell phones, TV’s, cars, computers, TV’s, designer handbags, TV’s, sportswear, high-end clothes, everything on Amazon, and TVs. They’ll make home improvements; shop and dine out more frequently; and take more vacations.

Some label that “trickle down” economics, but it’s not. It is a win-win chain reaction born from people keeping more of their own hard-earned money. So, for example, when a family or business builds an addition, they are employing bankers, plumbers, electricians, concrete workers, carpenters, interior designers, architects, laborers, and landscapers. They are keeping lumber, drywall, flooring and furniture companies afloat and staffed.

That keeps truck drivers and deliverymen employed, which in turn boosts truck manufacturers, vehicle dealers, mechanics, tire companies, aftermarket parts businesses, and fuel companies. As bottom lines expand across the board, companies hire more employees – white and blue collar – and often reduce prices because operational efficiencies increase with the scaled-up workload. And countless ancillary businesses benefit, too, from hotels to restaurants, to IT and cleaning services.

Every one of those individuals and companies pay taxes. And the more they make, the more they pay. Everyone wins. Free market at its finest.

Bottom line: government coffers actually swell after a tax cut, because what revenue it “loses” by the reduced rate is more than made up by the vastly increased volume of spending.

2) The hypocrisy of the newfound fiscal hawks in Congress is sickening. The national debt skyrocketed from $6 trillion in 2000, to an incomprehensible $21 trillion today – with no tax cuts. Yet those responsible for that abomination, Republican and Democrat alike, are now crying that the tax plan might add $1.4 trillion to the debt – over 10 years! Tax cuts won’t add to the debt, but for argument’s sake, if you assume the critics to be right, that means they’re worried about adding $140 billion a year to the debt. Really? Washington spends that in the blink of an eye with zero return. At least a tax cut would have a monumental investment impact on the economy.

3) The issue with deficits and the national debt has nothing to do with tax cuts and everything to do with congressmen not doing their job. If they had – reining in spending and running the government like a business – we wouldn’t have crippling financial problems. Just as families make tough choices and tighten the belt when things get tough, so too should the federal government. But Congress’ answer was to keep spending money it didn’t have.

The American people should not be indentured servants to their government via an immoral tax code, where their paychecks – indeed their lives – are held hostage by a government unwilling to balance the budget (as most states do), enact inflation minus one spending bills (which would result in huge deficit reduction), and reform entitlements. You don’t “fix” a wrong by committing another wrong, and government subsidizing its spending addiction on the backs of Americans is flat-out wrong. Enough is enough.

4) Many U.S. companies have relocated overseas entirely or “re-domiciled” in countries with substantially lower corporate tax rates, such as Ireland. And for good reason: other nations realized that the more they lowered their tax rates, the more wealth and working capital they would attract to their shores.

The loser, of course, has been the United States, with its staggeringly high rate of 35 percent. Worse, effective rates are even higher after state and local taxes are levied. So a Pennsylvania company pays the world’s highest corporate tax, on top of the nation’s second-highest state corporate net income tax, on top of local taxes (and Philadelphia is, cumulatively, the highest-taxed city in America).

Sky-high rates are anathema to competition. They stifle innovation, cause job cuts, place a cap on new hires, and remove capital from the free market, where it could have been invested in projects and people. But lower that rate, and it’s off to the races. Apple has over $215 billion parked in favorable locations overseas, compared to just $16 billion stateside. Make America more competitive, and it becomes a watershed event as billions flow homeward. And that’s just one company. Imagine the boon when untold billions, maybe trillions, are spent domestically to hire more people, increase research and development, expand operations, bolster ancillary business, and add high-octane fuel to America’s economic engine.

Sir Winston Churchill rightly stated, “We contend that for a nation to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”

President Trump and the Republican Congress – no more excuses. Your inaction thus far has been extremely taxing. Time to pass the cut so we can take our money – and you can take your re-election – to the bank.

Chris Freind is an independent columnist and commentator. His print column appears every Wednesday. He can be reached at CF@FFZMedia.com